Wells Fargo is one of the four largest banks in the United States. The bank received 25 billion dollars in TARP money (the bailout). But the bank charged 203 million dollars in overdraft fees since 2001 in violation of the law. They made their money by paying out checks and card fees largest to smallest instead of in the order they were received. This enabled the bank to stack overdraft fees.

Federal judge William Alsup described what the bank was doing as “unfair and deceptive business practices.”

He ordered the bank to pay back the 203 million dollars they made using the practice of largest to the smallest.

Here’s a news story reporting the decision –

I love irony, the irrational collision of one situation with another – and for that irony lets look at

Wells Fargo’s Vision Statement –

“We want to satisfy all of our customers’ financial needs, help them succeed financially, be the premier provider of financial services in every one of our markets, and be known as one of America’s great companies.”

Apparently manipulating the order of payout to artificially increase the number of overdraft fees “helps consumers succeed financially.”

Here’s a very different take on overdraft fees –

Are all overdraft fees always unfair? Of course not. If there was no penalty the banks would be faced with an avalanche of bouncing checks. There are many defenders of banks who say they are justified. Wrong! That’s not the question. If you only ask it one way, that is, should banks be able to charge overdraft fees, the argument always goes to the bank. But the question here is “are the fees reasonable.”

What does it cost a bank to process an overdraft?

Why doesn’t the bank charge based on the size of the overdraft rather than charging the same for $1.25 overdraft as for a much larger amount?

How much money does the bank make on overdrafts?

When you start looking at the facts, it becomes a messy problem. There are a lot things to figure in to the situation. Nevertheless, Wells Fargo’s practice is simply unfair.

There are other banks that use the practice. Will they be forced by the courts to payback the fees as well? Wells Fargo is appealing the decision. Stay tuned. I’ll tell you how it comes out.

James Pilant